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Dams Can't Soften Rate Hikes

by Rocky Barker
The Idaho Statesman, March 11, 2001

Energy woes spell end of low-cost power for Idaho

(Katherine Jones) Holm won't be able to afford to run the pumps that supply his irrigation lines The hydroelectric power system that built Idaho's economy has reached its limits.

The series of Snake River dams and reservoirs no longer can shield Idaho from the effects of the changing power market. Idahoans face possible rate increases of more than 50 percent this year as electric utilities and cooperatives react to California's power shortfall.

A drought that may be the worst in more than 50 years means there will be far less water this year to turn hydroelectric turbines on the Snake and Columbia river dams that provide the base of power for Idaho and the Pacific Northwest. As utilities scramble to make up the shortfall, they are paying stratospheric prices for power supplies tightened by a decade of rapid growth and scant power-plant construction.

For most residents and businesses, the current increases will be inconvenient but not a crisis since Idaho's rates are the second-lowest in the nation. But for the industries and farms dependent on cheap power for their thin profit margins, this is the moment of truth -- the end of the frontier.

"I believe beyond a shadow of a doubt we'll never go back to the electricity rates we have now," said Bud Tracy, general manager of Raft River Rural Electric Cooperative in Malta.

That's bad news for Del Ray Holm of Roberts, who pumps water with electric motors from as deep as 900 feet below the eastern Idaho desert to grow potatoes and wheat. He and thousands of Idaho farmers sank their deep wells or pumped water hundreds of feet up canyon walls directly from the Snake River and turned more than a million acres of desert into cropland beginning in the 1950s.

"The power company begged us to drill these wells," Holm said.

Now Utah Power Co., which provides power to Holm's 5,000-acre farm, is offering to buy back the electricity he ordinarily would use for this growing season. If the price of electricity doesn't drop back down to the rate Holm paid last year, he'll have to quit pumping, and much of his land and the surrounding farms will dry up and return to desert.

The end of an era

Already Astaris LLC has shut down two of the four furnaces it has used to melt rock into elemental phosphorus in Pocatello, because of the high cost of electricity. The Bonneville Power Administration, a federal agency organized to market power from the federal dams in the Snake and Columbia rivers, has told aluminum smelters it won't be able to supply them cheap hydroelectric power after 2006.

"I see it as the deindustrialization of the Northwest," said Brett Wilcox, CEO of Golden Northwest Aluminum, which owns two aluminum smelters in Washington and Oregon. "Every manufacturer depends on electric power to different degrees. If they're being pushed to the market, they're going to have a hard time competing."

Increasingly, the economy of Idaho and the Pacific Northwest depends on high technology industries like Micron, Intel and Microsoft. These companies also use large amounts of electricity. But unlike for the smelting and high-lift pumping irrigators, low electricity prices are not critical.

"A power outage has more potential to be devastating to us than a rate increase," said Grant Jones, a Micron Technology spokesman.

"You are seeing the waning days of the electricity industries and and the dawning of the electronic industry," said Jan Packwood president and CEO of Idacorp. "The customer has fundamentally changed."

In California, utilities have shut down power temporarily to entire communities, -- so-called rolling blackouts -- to manage acute shortages.

Idaho Power Co. has contingency plans in place to ensure that doesn't happen, even if a large power plant is forced off line or if a major supplier cuts off power. It also believes it can obtain adequate supplies.

But two blackouts in 1996 caused by transmission problems elsewhere prevent Packwood from guaranteeing no outages.

"That's a guarantee no one can make," he said.

Dams made Idaho grow

Pioneers wrestled the power of the Snake River and its tributaries behind dams that produced power for the mines and factories on which Idaho's growth was built. In 1938, the federal government built Bonneville Dam on the Columbia, the first of a vast system of 30 federal dams that provide 42 percent of the region's electricity. Those dams, including Grand Coulee, powered the plants that smelted the aluminum that was shaped into planes for World War II. When the war was over, there was power to spare.

In the late 1950s, Idaho Power Co. expanded its hydroelectric system with the Hells Canyon Dams. The extra power from these and other private dams attracted food processing industries and phosphate smelters and allowed farmers to pump water to lands previously too expensive to irrigate.

By the late 1970s, after all the major dams were completed, power planners predicted a shortage in the 1980s if new power plants weren't built.

The Washington Public Power Supply System and 88 smaller utility partners throughout the Pacific Northwest planned to build five nuclear plants to meet the demand. But energy conservation prompted by the Arab oil embargo of the 1970s dramatically reduced demand.

The combination of lower demand and construction delays led the utility to suspend construction on three of the five nuclear plants. The bonds defaulted, saddling BPA and the utilities with a long-term debt it is still paying down.

Idaho Power was the only utility in the region that did not participate in WPPS, or Whoops, as the ill-fated project became known. A large coal-fired plant that Idaho Power tried to build 20 miles south of Boise in the 1970s was rejected by the Idaho Public Utilities Commission.

Together, those two decisions prevented Idaho Power and its customers from paying the higher costs of maintaining more generation than it needed in the early 1980s when demand did not grow as planners predicted. Later, the company partnered in coal-fired plants in Nevada, Washington and Wyoming to meet its growing needs.

Now, in a good water year, Idaho Power's Snake River hydroelectric plants produce 60 percent of its power needs. Rural electrical cooperatives like Raft River buy their power at cost from the BPA and the federal dams accounting for 20 percent of Idaho's total electricity. Avista Corp. serves northern Idaho with mostly hydroelectric power. Utah Power also has hydroelectric resources, but most of its power comes from coal.

That has made eastern Idaho farmers like Holm pay higher costs for power than those in the Magic Valley and Southwest Idaho who buy from Idaho Power and those who get their power from cooperatives. That means they are closer to economic extinction than the rest.

Holm stood next to a 15-foot-high pile of potatoes he dumped in February in an attempt with other farmers to bring the price up to where it would at least pay his shipping costs.

"A good part of the cost of those potatoes is electricity," he said.

With the huge increases in power prices expected this year, thousands of farmers will face pumping costs that are impossible for them to pay. More than 900 farmers have offered bids to Idaho Power to buy back electricity this year.

Increasingly, the water that farmers spread on their crops is worth more for generating electricity than the crops are worth. At only 10 cents a kilowatt hour, leaving the water needed to irrigate an average acre in the Snake River area would return about $422 in increased generation at Idaho Power and federal dams below, according to University of Idaho Economist Joel Hamilton.

The Bell Rapids Mutual Irrigation Co. pumps water 600 feet above the Snake River to a plateau where 10 to 20 farmers irrigate more than 19,000 acres of potatoes, sugar beets and other crops. It uses more than 40 million kilowatts of electricity to pump the water, enough to light 2,857 homes.

Bell Rapids farmers have talked with federal officials on and off about selling the entire project for the water to increase flows downstream for endangered salmon. But residents in Buhl worry about the effect on feed stores, implement dealers and other farm-related businesses if such a large productive area is turned back into desert.

Effects would spread

Idaho lawmakers worry about such losses on a grander scale.

"This is an issue of historic proportions," said Sen. Laird Noh, R-Kimberly.

Studies done to assess the effects of leaving water in the river for salmon suggest rural Idaho, already hit by low crop prices and slow growth, would suffer if water was transferred to electricity generation. Leaving 1 million more acre-feet of water in the Snake annually would dry up 643,000 of the 1.4 million acres irrigated in southern Idaho, the Bureau of Reclamation estimates.

If that happened, Idaho would lose $45 million to $210 million in income and from 2,500 to 6,500 jobs, according to the Bureau of Reclamation. However, using Hamilton's assumptions based on 10 cents a kilowatt hour rates, the 1 million acre feet would return $135 million in increased generation annually.

Idaho Power is expected to pay more than 10 cents per kilowatt hour this year, so the estimate of the value of increased generation is conservative.

Rural lawmakers like Noh want to keep Idaho water irrigating Idaho crops, and they say aggressive energy conservation is the key. If marginal land is dried up, they hope the effects will be spread across southern Idaho instead of concentrated in a few areas.

Farmers want to ensure they share in the benefits in either temporary or long-term programs.

Astaris' phosphate smelter is the largest user of electricity in Idaho -- even after it decided to permanently shut down two of its four furnaces and lay off 21 of its 440 workers. Its two remaining furnaces will face the rate increases proposed by Idaho Power.

But it is not planning to disappear, said Arlen Wittrock, a company spokesman. Astaris already has begun building a phosphoric acid plant in Soda Springs with a process that uses far less electricity.

"It's our plan to continue with a two-furnace operation," Wittrock said. "But, that said, we're certainly concerned where the regulated power prices are going in the future."

Idaho Power has requested an emergency rate increase that would boost residential light bills by 24.3 percent. Farmers and businesses would see increases ranging from 32.8 percent to 44.5 percent. In April, the company expects to ask for further rate increases that could raise the entire package to more than 50 percent.

BPA has proposed a 60 percent rate increase over five years beginning in October that would be passed on to its cooperative and municipal customers. Avista and Utah Power also are expected to ask for rate increases.

Experts expect those rate increases to be temporary, wiped out by heavy snows in a future winter and new generating sources like the 250-megawatt gas turbine plant Idaho Power wants to build near Meridian. But new generation will be more expensive than the existing hydroelectric power costs.

Idaho Power also is in the middle of a relicensing of its hydroelectric dams with the Federal Energy Regulatory Commission. The company expects to pay more to offset the effects of the dams on fish, wildlife and recreation. If expensive fish bypass systems are required, it could even make the dams too expensive.

"I don't think we should have unrealistic expectations that rates will drop to what they were the last 10 years," said Marsha Smith, one of three Idaho Public Utilities Commissioners, who approve electric rate increases.

Rocky Barker
Dams Can't Soften Rate Hikes
The Idaho Statesman, March 11, 2001

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